The US Phillips Curve and inflation expectations: A State Space Markov-Switching explanatory model
AbstractThis paper proposes a new empirical representation of US inflation expectations in a Stace-Space Markov-Switching framework in order to identify the expectations regimes which are associated with short and long term Phillips curves. We explicitly identify the dynamic of inflation expectation errors using the expectations augmented Markov-switching Phillips curve as a measurement equation. In this paper we consider expected inflation as an underlying component of observed inflation. We thus use the same type of specification (occasionally integrated) to describe its dynamic. We have found that dynamics of inflation expectation errors change across regimes. For the last 20 years we show the Phillips curve is vertical and associated with rational inflation expectations. Whereas for the period of economic instability (1973-1983) a negative Phillips curve is associated with adaptive expectations
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 133.
Date of creation: 11 Aug 2004
Date of revision:
State-Space Markov-Switching model; Inflation expectation errors; Phillips curve; occasionally integrated process;
Other versions of this item:
- Nicolas Million & Guillaume Guerrero, 2004. "The US Phillips Curve and inflation expectations: A State Space Markov-Switching explanatory model," Econometric Society 2004 Far Eastern Meetings 542, Econometric Society.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Gordon, 1997.
"The Time-Varying NAIRU and Its Implications for Economic Policy,"
Journal of Economic Perspectives,
American Economic Association, vol. 11(1), pages 11-32, Winter.
- Robert J. Gordon, 1997. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
- Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers 1492, C.E.P.R. Discussion Papers.
- Alesina, Alberto, 1988. "Credibility and Policy Convergence in a Two-Party System with Rational Voters," American Economic Review, American Economic Association, vol. 78(4), pages 796-805, September.
- Sargent, Thomas J, 1969. "Commodity Price Expectations and the Interest Rate," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 127-40, February.
- Hasan Bakhshi & Anthony Yates, 1998. "Are UK inflation expectations rational?," Bank of England working papers 81, Bank of England.
- Kim, C-J., 1991.
"Dynamic Linear Models with Markov-Switching,"
91-8, York (Canada) - Department of Economics.
- Ang, Andrew & Bekaert, Geert, 2002.
"Regime Switches in Interest Rates,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(2), pages 163-82, April.
- Paul Mylonas & Sebastian Schich, 1999. "The Use of Financial Market Indicators by Monetary Authorities," OECD Economics Department Working Papers 223, OECD Publishing.
- Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.